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Stocks Continue Rally; CPI Report Below Expectations

°¿±¹±ð°ù±¹¾±±ð·É:ÌýStocks around the world continued their rally last week, led by international developed (MSCI EAFE) and emerging market stocks (MSCI EM), higher by 2.3% and 1.8%, respectively, on the week. In the U.S., the S&P 500 index recorded its 37th new record high for the year, finishing the week up 0.9%, as data showing a cooling economy and continued disinflation bolstered investor sentiment. On the inflation front, both headline and core consumer prices (CPI) came in below expectations as headline CPI rose 3.0% year-over-year, down from 3.3% the month prior. Meanwhile, core CPI (ex-food and energy) rose by 3.3% year-over-year for its lowest rate since January 2021. Markets now are pricing in more than a 90% chance of a first rate cut at the September Fed meeting, with the expectation now for 2-3 cuts over the course of the year. Yields fell on the week, with the 2-year and 10-year Treasury notes finishing the week at yields of 4.46% and 4.19%, respectively. With the falling rates, both taxable and municipal broad-based bond indices now are in positive total return territory for the year. Looking ahead to this week, investors will be monitoring the Republican National Convention, which begins today in Milwaukee. Attention will be on developments with the attempted assassination of former President Trump over the weekend, and potential ramifications they may have on the November election and the markets. On the earnings front, more than 40 S&P 500 companies will report this week, with companies such as Goldman Sachs, Blackrock, Netflix, United Airlines, and Bank of America headlining the list. Key economic data will be reported on Tuesday with retail sales for June expected to fall 0.2% as markets continue to monitor the health of consumer spending. 

The Growing Wealth and Income Inequality (from JP Morgan): The Misery Index, a gauge of economic health calculated by summing the year-over-year CPI inflation rate and the unemployment rate, fell to 7.1% in June. By this measure, the economy today is stronger than it has been 70% of the time since 1948. Despite this, consumer sentiment remains notably glum. Investors are pondering the divergence between economic sentiment and aggregate economic statistics, and, while there is no single answer, growing wealth and income inequality could be partly to blame. The share of pre-tax income received, and wealth owned by the richest 10% of households between 1966 and 2022, according to the Federal Reserve, has risen sharply over the decades and by 2022 the richest 10% owned 71% of all wealth and received 48% of all income in the U.S. This growing inequality impacts both consumer spending and investing in financial markets since the richest 10% of households proportionately save a much larger portion of their income, and often devote those savings to buying stocks and bonds while spending proportionately less on goods and services. A continuation of this trend of increasing inequality into 2024 may be one reason why the first half of the year has seen a further surge in the stock market even as spending on non-durable goods has slowed, a sign of mounting stress on lower-income consumers.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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